The Commission on the 21st Century Economy

One of the perils of the California situation at this point is the absolute volatility of its revenue system. We've had swings of 60% on capital gains receipts in several of the last few years. Admittedly our politicians seem to want to spend everything we get in in the fat years (and then some). But that is normal behavior for the political class.

The media have not missed our problem. In three recent articles (Who Killed California?,How California Can Get Its Groove Back,California Failing), National Affairs, the Wall Street Journal and the Guardian wrote articles about our problems.

This spring the political leadership did something right. The established a commission to look at our tax system and come up with proposals to take some of the bounce out of the tax system - which is so obviously encouraging high wealth individuals and firms to flee the state.

The Commission released its report this week and it has some pretty good ideas, at least as a starting point for a discussion. An odd group of individuals including Willie Brown, George Shulz, and Diane Feinstein endorsed at least the necessity to go forward. Unfortunately, parts of the state's business leadership did not. The head of the State Chamber of Commerce, who no doubt has been losing members to other states in recent years, babbled ""We must not rush into replacing our 70-year-old tax system with an unproven experiment." The head of the California Business Roundtable, as a member of the Commission, refused to endorse the report. (When even the liberal dean of UC's law school, who also served on the commission did.)

In 1984 President Reagan pushed for reforming the US income tax. He got a commission together which produced a long and academically thoughtful report which was lousy on the politics. Rather than giving up - he stuck to his guns and with the help of some prominent politicians on both sides of the aisle (O'Neill, Rostenkowski, Packwood, Bradley) got a tax bill which simplified our system and improved efficiency. (The best summary of that process was done in a book by Jeff Birnbaum who was then with the Wall Street Journal - Showdown at Gucci Gulch)

It will be a test of our current governor and the legislative leadership that created the commission whether they will have the internal fortitude to continue forward to try to get some substantive change which will help to bring the state back. In the next couple of posts I want to analyze the report of the commission and its proposals. This may be the single most important public policy issue of this decade.